ultratech cement (ultcem) | 4,212

July 20, 2017

ICICI Securities Ltd | Retail Equity Research

Result Update

Improving realisation, stagnant volumes…

UltraTech Cement reported a mixed set of numbers. While revenues

were below our estimates, EBITDA, PAT were above our estimates

mainly led by lower raw material cost and interest expenses

Revenues increased 6.4% YoY to | 6,626.5 crore (below I-direct

estimate of | 6,854.4 crore) mainly led by 6.4% YoY increase in

realisation to | 5,020 (vs. I-direct estimate of | 4,945) while volumes

were flat at 13.2 MT (below I-direct estimate of 13.9 MT)

The EBITDA margin increased 71 bps YoY to 23.5% (above I-direct

estimate of 22.3%) mainly due to a decline in raw material cost (down

12.4% YoY). EBITDA/tonne increased 9.7% YoY to | 1,182/tonne (better

than I-direct estimate of | 1,100/tonne)

The company has completed the acquisition of Jaiprakash Associates

(with capacity of 21.2 MT)

Improving cement demand indicates long term up cycle in cement…

Over FY08-17, utilisation in the cement sector witnessed a decline from 83%

in FY08 to 64% in FY17 mainly due to capacity addition (incremental supply

of 223 MT) outpacing demand (incremental demand of 105 MT). As a result,

industry capacity doubled from 198 MT in FY08 to 421 MT in FY17 vs.

demand, which increased from 164 MT in FY08 to 269 MT in FY17. However,

we expect the demand-supply balance to improve in the next few years with

slower pace of capacity addition and likely improvement in demand

positively impacting utilisation levels. Cement sector utilisation is expected

to improve from 64% in FY17 to 72% in FY19E leading to higher margins for

cement players (driven by operating leverage benefits).

Rural demand to pick up on the back of healthy monsoon

A pick-up in housing on the back of healthy demand from first home buyers,

better monsoons and a revival in the rural economy will play a key role in

driving cement demand over the next few years. Apart from this, the

company will be a key beneficiary of improving cement demand on account

of higher budgetary allocation towards development of roads & highways

along with governments focus on rural development & affordable housing.

We expect cement demand to reach 311 MT by FY19E (i.e. at 7.5%CAGR) vs.

(CAGR of 4.7% in the last five years). In addition, we believe a stable pricing

scenario will positively impact revenues and margins in the next three years.

Consolidation of Jaypee - long term value accretive deal

The consolidation of 21.2 MT cement assets of Jaiprakash Associates

(Jaypee) will take the company’s total capacity to ~93 MT. This will enable

the company to further strengthen its leadership in India, going forward, with

a market share of over ~22% and become the fourth largest player globally.

We believe the transaction will be cash break even by Q1FY19 and be EPS

accretive by FY19E.

Undisputed leader of cement industry; maintain BUY!

With the acquisition of Jaypee and capacity expansion at Madhya Pradesh,

the company will have a domestic capacity of 93 MT and market share of

22% on a pan-India basis making it the undisputed leader of the cement

industry. Further, increased government spend, a revival in the rural

economy, slowdown in capacity addition and consolidation in the industry is

expected to put UltraTech in a sweet spot to capture future growth. In

addition, improving realisation and the company’s focus on cost

rationalisation is expected to aid margins. With industry leading growth,

higher margins and a healthy balance sheet, we maintain our BUY rating

with a target price of | 4,750/share (i.e. at 17.5x FY19E EV/EBITDA).

UltraTech Cement (ULTCEM) | 4,212

Rating matrix

Rating : Buy

Target : | 4750

Target Period : 9-12 months

Potential Upside : 13%

What’s changed?

Target Price Unchanged

EPS FY18E* Introduced at | 90.8

EPS FY19E* Introduced at | 130.0

Rating Unchanged

Quarterly performance

Q1FY18 Q1FY17 YoY (%) Q4FY17 QoQ (%)

Revenue 6,626.5 6,229.5 6.4 6,595.3 0.5

EBITDA 1,560.1 1,422.5 9.7 1,278.2 22.1

EBITDA (%) 23.5 22.8 71 bps 19.4 416 bps

PAT 890.6 774.9 14.9 688.3 29.4

Key financials

| Crore FY16 FY17 FY18E* FY19E*

Net Sales 23708.8 23891.4 29081.0 35166.9

EBITDA 4626.6 4969.0 5912.1 8107.7

Net Profit 2370.2 2627.7 2490.3 3567.3

EPS (|) 86.4 95.8 90.8 130.0

*We have incorporated Jaypee financials

Valuation summary

FY16 FY17 FY18E* FY19E*

PE (x) 48.7 43.9 46.4 32.4

EV to EBITDA (x) 25.6 22.9 21.9 15.6

EV/Tonne(US$) 292 264 232 220

Price to book (x) 5.5 4.8 4.4 4.0

RoNW (%) 11.3 10.8 9.6 12.5

RoCE (%) 11.6 12.1 9.2 12.3

Stock data

Amount

Mcap | 115440 crore

Consolidated Debt (FY17) | 20470 crore

Cash & Invest (FY17) | 8345 crore

EV | 127565 crore

52 week H/L | 4531 / | 3052

Equity cap | 274.2 crore

Face value | 10

Particular

Price performance

1M 3M 6M 12M

ACC 9.8 17.5 32.0 7.9

Ambuja Cement 11.9 6.8 22.8 -0.3

Shree Cement 4.0 5.1 25.1 19.4

UltraTech Cement 4.2 5.1 27.2 20.6

Research Analyst

Rashesh Shah

[email protected]

Devang Bhatt

[email protected]

mailto:[email protected]


Variance analysis

Q1FY18 Q1FY18E Q1FY17 YoY (%) Q4FY17 QoQ (%) Comments

Net Sales 6,626.5 6,854.4 6,229.5 6.4 6,595.3 0.5 The increase in revenue was driven by better pricing environment on pan-India basis

Other Incomes 165.2 180.0 150.4 9.8 240.1 -31.2

Raw Material Expenses 954.7 1,147.6 1,089.4 -12.4 1,150.8 -17.0

The decline in RM cost was mainly due to higher usage of additives and improved

clinker to cement conversion ratio

Employee Expenses 380.3 346.5 346.6 9.7 344.9 10.3

Power and fuel 1,217.4 1,143.5 923.7 31.8 1,154.3 5.5

The increase in power & fuel cost was mainly due to higher pet coke prices

(increased 2x from Q1FY17), partly offset by reduced power consumption and

enhanced WHRMS share

Freight 1,588.0 1,679.8 1,545.2 2.8 1,664.5 -4.6 Increase in diesel prices (up 9.0% YoY) led to higher freight cost during the quarter

Others 926.1 1,011.8 902.1 2.7 1,002.7 -7.6

EBITDA 1,560.1 1,525.3 1,422.5 9.7 1,278.2 22.1

EBITDA Margin (%) 23.5 22.3 22.8 71 bps 19.4 416 bps Lower RM cost led to rise in EBITDA margins

Depreciation 309.8 327.6 302.7 2.3 335.7 -7.7

Interest 128.5 152.9 152.5 -15.7 152.9 -16.0

PBT 1,287.0 1,224.8 1,117.7 15.1 1,016.0 26.7

Total Tax 396.3 404.2 342.8 15.6 327.6 21.0

PAT 890.6 820.6 774.9 14.9 688.3 29.4 Lower interest cost and increase in other income led to higher PAT

Key Metrics

Volume (MT) 13.20 13.86 13.20 0.0 13.74 -3.9

Sand availability issues in north & west coupled with drought in Tamil Nadu led to

flat volumes in Q1FY18

Realisation (|) 5,020 4,945 4,719 6.4 4,801 4.6 Healthy pricing in company's key markets helped in registering better realisation

EBITDA per Tonne (|) 1,182 1,100 1,078 9.7 931 27.0 The improvement in EBITDA/t was led by lower RM cost/t

Source: Company, ICICIdirect.com Research

Change in estimates

FY19E

(| Crore) Old* New % Change Old* New % Change Comments

Revenue NA 29,081.0 NA NA 35,166.9 NA

We expect revenues to increase at a CAGR of 21.3% in FY17-19E

led by Jaypee acquisition and healthy demand environment

EBITDA NA 5,912.1 NA NA 8,107.7 NA

EBITDA Margin (%) NA 20.3 NA NA 23.1 NA

We expect EBITDA margins to remain under pressure in FY18E

mainly led by lower EBITDA/t of Jaypee assets

PAT NA 2,490.3 NA NA 3,567.3 NA

EPS (|) NA 90.8 NA NA 130.0 NA

FY18E

Source: Company, ICICIdirect.com Research, * We have incorporated financials of Jaypee hence previous estimates are not comparable

Assumptions

Comments

FY14 FY15 FY16 FY17 FY18E FY19E FY18E FY19E

Volume (MT) 42.6 45.3 48.4 48.9 58.7 68.5 NA NA

We expect volumes to increase at a CAGR of 18.3% over FY17-19E

led by Jaypee acquisition and higher infra spend

Realisation (|) 4,713 4,995 4,894 4,883 4,953 5,131 NA NA

EBITDA per Tonne (|) 849 863 952 1,015 1,007 1,183 NA NA We expect EBITDA/t to improve from FY18E onwards

EarlierCurrent



Annual Report Analysis

The company’s domestic cement capacity during the year increased

2.0% YoY to 66.3 MT. However, the capacity utilisation declined from

76.0% to 72.0% mainly led by miniscule increase in volumes (from 47.6

MT in FY16 to 47.9 MT in FY17) and higher capacity base

Going forward, the company intends to set up 3.5 MT capacity in Dhar,

Madhya Pradesh at a cost of | 2600 crore. The capacity is expected to

be operational by Q4FY19. Apart from organic growth, acquisition of

21.2 MT capacity of Jaiprakash Associate will take the total domestic

capacity to ~93 MT enabling the company to maintain its leadership

position

In FY17, the company undertook various cost saving measures, which

led to 1.9% YoY decline in cost/tonne. In terms of power & fuel cost the

company reported a decline of 8.3% YoY mainly due to increase in the

usage of petcoke (from 70.0% in FY16 to 74.0% in FY17), industrial

waste, and efficiency improvements. Besides petcoke, increase in share

of waste heat recovery to 7% of the total power requirement of the

company led to reduced consumption of coal and petcoke (by ~0.25

MT). In addition, logistic cost/t declined 2.5% YoY mainly led by

reduction in the average lead distance, improved utilisation of new

cement grinding capacities, rationalisation of road freight rates and

increased coastal movement. However, employee cost increased by

5.2% YoY due to annual increments and commissioning of new plants

Finance cost during the year increased by | 59 crore to | 571 crore

mainly led by provision for interest on entry tax pertaining to earlier

years and lower benefit of interest subsidy due to the completion of the

government grant period

Cash from operations of the company increased 11.5% YoY mainly led

by higher margins and reduction in working capital requirement.

Inventory days of the company declined from 40 days to 36 days mainly

due to reduction in inventory of stores and spares

During the year the company incurred a capex of ~| 1,200 crore for

completion of new grinding capacity commissioned during the year and

meeting regulatory requirements, plant upkeep & improving efficiencies.

For FY18E, the company plans to incur capex of | 2,200 crore for

capacity expansion projects, regulatory requirements and plant

infrastructure

Exhibit 1: Fuel mix trend

Fuel mix FY12 FY13 FY14 FY15 FY16 FY17

Petcoke (%) 26 38 48 52 70 74

Imported coal (%) 44 35 26 26 20 14

Indigenous coal and others (%) 30 27 26 22 10 12

Total 100 100 100 100 100 100


Exhibit 2: Transport mix trend

Transport mix FY12 FY13 FY14 FY15 FY16 FY17

Rail (%) 36 34 34 29 28 25

Road (%) 61 63 63 67 69 72

Sea (%) 3 3 3 4 3 4

Total 100 100 100 100 100 100


WHRMS capacity and share

10.5

33.2

59 59

0

20

40

60

80

FY14 FY15 FY16 FY17

0

2

4

6

8

WHRMS capacity WHRMS share


Improving industry dynamics indicate long term up cycle in cement

Exhibit 3: Demand supply scenario

198216

276304

319

357 368392

409421 424 430

311

164178

203214

229241

247255

264 269288

0

100

200

300

400

500

FY 08 FY 09 FY 10 FY 11 FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18E FY19E

0

20

40

60

80

100

Capacity Demand Utilisation (%)

Demand expected to register strong growth in FY17-19E

Demand is expected to improve in the south mainly led by an improvement

in infrastructure, irrigation especially in AP, Telangana and Amaravati.

Further, the western region is expected to witness healthy growth led by

pick up in demand from Mumbai. In addition, post monsoon cement

demand and disbursement of Seventh Pay Commission is expected to drive

cement in rural areas. However, demand in the urban region is expected to

remain subdued due to RERA compliance and high unsold inventory.

Key takeaways in Q1FY18 from conference call

The company expects industry as a whole to grow 5.0% in FY18E

In the long term, UltraTech expects logistic cost to be lower due to

introduction of GST

In Q2FY18, there will be one time impact of Jaypee acquisition in the

P&L. The company expects to ramp up Jaypee capacity utilisation to

60% by Q1FY19 from current 15.0%. Further, it expects to ramp up

Jaypee capacity utilisation to 70% in FY19E

Jaypee sells cement at | 15-20/bag lower than tier-1 players. Further

it has incentives of | 120/t in terms of vat incentives, which will

expire by FY19E. In terms of fuel mix, the company plans to ramp up

pet coke consumption to 60-70% over the coming years

The company generates 40% of its revenues from rural areas

In terms of transport mix, 70.0% was through road

Average prices of petcoke for Q1FY18 were at US$85/tonne while

the current price according to the company is ~US$87-90

White cement revenues during Q1FY18E were at | 370 crore while

RMC revenues were at | 475 crore

The current cement to clinker conversion ratio is 1.34, which the

company plans to further ramp down

The capacity utilisation region wise was North 80%, West 80%, East

90%, South 60% and Central 70%.


Jaypee acquisition to help company to be undisputed leader

UltraTech Cement is the largest player in capacity terms (~67.8 MT) with a

market share of over ~17% in India. The acquisition of 21.2 MT cement

assets of Jaiprakash Associates (Jaypee) will enable the company to

maintain its leadership in India, going forward. This move will increase its

capacity to 93 MT, making it the largest cement player in the domestic

market (fourth largest player globally) with a market share of over 22%. With

this deal, UltraTech will have a presence across regions (except North East).

Jaypee’s cement assets are spread across regions viz. 1) Central region (11.4

MT), 2) North (4.8 MT) and 3) South (5 MT). The location of 11 plants of

Jaypee complements the existing 40 of UltraTech. The acquisition is

expected to give UltraTech access to newer markets of Satna (11.4 MT) and

coastal Andhra Pradesh (5.0 MT). We expect Jaypee to register utilisation of

~47% in FY18E and 68% in FY19E and EBITDA/t of | 543 and | 1050 in

FY18E and FY19E, respectively.

Exhibit 4: Post acquisition regional capacity share

16

30

14

37

19

0

5

10

15

20

25

30

35

40

North West South Cental East


Operates at healthy EBITDA/tonne vis-à-vis industry

With lower lead distances due to a pan-India presence, captive power plants

and higher sales realisations due to a higher trade mix coupled with higher

white cement sales realisation, the company generates highest

EBITDA/tonne in the industry. It has also been able to reduce its power

consumption per tonne gradually through various initiatives to ~74/kwh.

Further, the company is taking various cost saving initiatives like increasing

WHRMS capacity (from 59 MW to 68 MW), increased usage of pet coke,

which will further help in lowering power cost. Apart from this, the company

has set up various grinding units, which will help reduce freight cost.

Further, higher utilisation of grinding unit will further aid margins.

Exhibit 5: Gradual reduction in power requirement

Power mix FY12 FY13 FY14 FY15 FY16 FY17

TPP 78.0 79.0 81.0 82.0 82.0 80.0

WHRS 0.4 0.3 0.3 2.0 5.0 7.0

Others 22.0 21.0 19.0 16.0 13.0 13.0

Total 100.4 100.3 100.3 100.0 100.0 100.0

Source: Company, ICICIdirect.com Research,*FY14,FY16 figures provisional

Exhibit 6: Higher EBITDA/tonne vis-à-vis peer group

1,0

39

882

832

894 1,0

12

1,0

78

978

982

931

851

662

687

673 8

00

959

830

743

723

-

200

400

600

800

1,000

1,200

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

EB

ITD

A/tonne (

|)

Ultratech Industry


Peer set includes ACC, Ambuja, Shree cement and India cement


Expect revenue CAGR of 21.3% during FY17-19E

Revenues have grown at a CAGR of 5.6% in FY12-17 mainly led by moderate

growth in volumes of 3.3% CAGR and realisation growth of 2.2% CAGR in

FY12-17. However, in FY17-19E, we expect volume CAGR of 18.3% in FY17-

19E mainly led by higher infra spend by the government and acquisition of

Jaypee Assets. Further, we expect realisation to increase at 2.5% CAGR in

FY17-19E led by a pick-up in demand. Consequently, revenues are expected

to grow at 21.3% CAGR in the next two years.

Exhibit 7: Expect volume led revenue CAGR of 21.3% in FY17-19E

20021 20078

2265223709 23891

29081

35167

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

FY13 FY14 FY15 FY16 FY17 FY18E FY19E

Sales (| crore)


Exhibit 8: Capacity addition plans (standalone)

Unit Grey Cement

Opening FY16 66.3

Additions Q1FY17 Bihar 1.6

Q2FY17 Jaypee 21.2

Q4FY19 Dhar, MP 3.5

Closing FY20 92.6


Exhibit 9: Volume to grow at CAGR of 18.3% in FY17-19E

42.645.3

48.4 48.9

58.7

68.5

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

FY14 FY15 FY16 FY17 FY18E FY19E

Sales Volumes


Exhibit 10: Realisation to pick up led by uptick in demand

4713

4995

4894 4883

4953

5131

4500

4600

4700

4800

4900

5000

5100

5200

FY14 FY15 FY16 FY17 FY18E FY19E

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Realisation (|/tonne) -LS Growth (%) -RS


Exhibit 11: Volume flat in Q1FY18…

11.912.4

11.111.6

13.6 13.2

11.2 11.3

13.713.2

0

5

10

15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Million T

onne

Sales Volume


Exhibit 12: Quarterly realisation trend

4794 4984

4872

4708

4719

4827

4946

4801 5020

4000

4250

4500

4750

5000

5250

5500

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

(|

)

Realisation



Margins to improve led by operating efficiency

Going forward, cost/t is expected to increase led by acquisition of Jaypee

Cement. However, with the pick-up in demand and improving utilisation and

EBITDA/t at Jaypee in coming quarters will lead to an improvement in

margins in FY19E.

Exhibit 13: Expect EBITDA/tonne of | 1,183 in FY19E

1084

849 863952

1015 1007

1183

0

200

400

600

800

1000

1200

1400


EBITDA/Tonne


Exhibit 14: Margins to improve led by improvement in realisations

22.6

18.017.3

19.5

20.820.3

23.1

10.0

15.0

20.0

25.0

30.0


EBITDA Margin (%)


Exhibit 15: Q1FY18 EBITDA per tonne at | 1182/t

882832

894

10121078

978 982931

1182

0

200

400

600

800

1000

1200

1400

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

| p

er t

onne


Exhibit 16: Quarterly margin trend

18.416.7

18.3

21.5

22.8

20.3

19.9

19.4

23.5

0

5

10

15

20

25Q

1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

(%

)

EBITDA Margin


Expect net profit CAGR of 14.6% during FY17-19E

In FY18E we expect a dip in net margins mainly due to higher interest

expenses (mainly led by acquisition of Jaypee) and lower EBITDA margins.

However, we expect margins to improve in FY19E led by higher utilisation at

Jaypee and improving demand.

Exhibit 17: Profitability trend

2370.22655.6

2144.52014.7

2627.7

2490.3

3567.313.3

10.7

8.9 10.0

11.0

8.6

10.1

0

1000

2000

3000

4000

FY13 FY14 FY15 FY16 FY17E FY18E FY19E

| c

rore

0.0

5.0

10.0

15.0

(%

)

Net profit - LS Net profit margin -RS



Outlook and valuation

We believe the industry’s capacity utilisation bottomed out at ~64% in FY17.

With the government taking measures to boost infrastructure development

through steps like long-term fund availability for major infra projects, higher

budgetary allocation towards public infrastructure development, we expect

robust cement demand growth in FY17-19E to reach 311 MT by FY19E (i.e.

at CAGR of 7.5%) vs. (CAGR of 4.7% over last five years). The company

expects government infra spends to gain momentum, especially on

construction of concrete roads and creation of new capital city of Amaravati

in Andhra Pradesh. UltraTech is well positioned to reap the benefit of a

recovery in demand and generate healthy free cash flows in future. We

assign premium valuations multiple to UltraTech vs. its peer companies due

to its ability to generate higher margins and healthy cash flows. Hence, we

continue to maintain our positive view on the stock with a BUY rating and a

target price to | 4,750/share (i.e. at 17.5x FY19E EV/EBITDA).

Exhibit 18: Key assumptions

| per tonne FY15 FY16 FY17 FY18E FY19E

Sales Volume* 45 48 49 59 69

Net Realisation* 4995 4894 4883 4953 5131

Total Expenditure 4132 3939 3867 3946 3948

Raw material 785 820 822 723 750

Power & Fuel 1046 875 802 922 900

Freight 1190 1225 1195 1203 1200

Employees 269 277 289 288 288

Others 842 741 759 810 810

EBITDA per Tonne 863 952 1015 1007 1183

Source: ICICIdirect.com Research; * Blended (grey + white + clinker)


Exhibit 19: One year forward EV/EBITDA

10000

30000

50000

70000

90000

110000

130000

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Jul-14

Jan-15

Jul-15

Jan-16

Jul-16

Jan-17

Jul-17

(|

Crore)

EV 21.5x 18.5x 16.5x 14.5x 10.5x


Exhibit 20: One year forward EV/Tonne

0

5000

10000

15000

20000

25000

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

Jul-13

Jan-14

Jul-14

Jan-15

Jul-15

Jan-16

Jul-16

Jan-17

Jul-17

Million $

EV $270 $225 $175 $125 $80


Exhibit 21: Valuation

Sales Growth EPS Growth PE EV/Tonne EV/EBITDA RoNW RoCE

(| cr) (%) (|) (%) (x) ($) (x) (%) (%)

FY15 22651.5 12.8 73.4 -6.1 57.3 317 30.7 10.7 10.6

FY16 23708.8 4.7 86.4 17.6 48.7 292 25.6 11.3 11.6

FY17 23891.4 0.8 96.3 11.4 43.9 264 22.9 10.8 12.1

FY18E 29081.0 22.7 90.8 -5.7 46.4 232 21.9 9.6 9.2

FY19E 35166.9 47.2 130.0 43.2 32.4 220 15.6 12.5 12.3



Recommendation History vs. Consensus Estimates

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500

Jul-17Jun-17Apr-17Mar-17Jan-17Dec-16Oct-16Sep-16Jul-16Jun-16May-16Mar-16Feb-16

(|

)

0.0

20.0

40.0

60.0

80.0

100.0

(%

)

Price Idirect target Consensus Target Mean % Consensus with BUY

Source: Bloomberg, Company, ICICIdirect.com Research

Key events

Date Event

Sep-13 Announces that the company will acquire 4.8 MT of Gujarat Cement plant of Jaypee Cement. Other than this, ~ 10 MTPA capacity will be commissioned by FY15.

Total cement capacity is expected to reach ~70 MTPA

Jun-14 Company starts including Jaypee Cement operations in quarterly result from Q1FY15

Sep-14 Commissions 1.4 MT cement mill at Karnataka and 25 MW power plant at AP

Dec-14 Board approves acquisition of cement business of Jaiprakash Associates in MP with capacity of 4.9 MT

Aug-15 Commissions a bulk terminal with a capacity of 2 MT in Pune, Maharashtra.

Sep-15 Commissions a cement grinding unit with a capacity of 1.6 MT at Jhajjar, Haryana.

Sep-15 Commissions a cement grinding unit with a capacity of 1.6 MT at Dankuni, West Bengal.

Dec-15 Compat sets aside the Competition Commission of India (CCI) order of alleged cartelisation

Feb-16 The company signs binding MoU with Jaiprakash Associate to acquire 22.4 MT cement capacity

Apr-16 Commissions a cement grinding unit with a capacity of 1.6 MT at Patliputra, Bihar.

Jan-17 The board approves setting up of 3.5 mt integrated plant at Dhar, Madhya Pradesh and is expected to be operational by Q4FY19

Jun-17 Completion of acquisition of Jaypee assets (~21.2 MT)


Top 10 Shareholders Shareholding Pattern

Rank Name Last filing date % O/S Position (m) Change (m)

1 Aditya Birla Group 31-Mar-17 60.2 165.3 0.00

2 Life Insurance Corporation of India 31-Mar-17 2.21 6.06 (0.01)

3 Aberdeen Asset Management (Asia) Ltd. 31-May-17 1.57 4.31 (0.10)

4 OppenheimerFunds, Inc. 31-Mar-17 1.45 3.99 0.11

5 Aberdeen Asset Managers Ltd. 31-May-17 1.34 3.68 (0.03)

6 Capital World Investors 31-Mar-17 1.21 3.32 3.32

7 Capital Research Global Investors 31-Mar-17 1.14 3.14 3.02

8 Franklin Advisers, Inc. 30-Apr-17 0.98 2.68 0.00

9 BlackRock Institutional Trust Company, N.A. 30-Jun-17 0.93 2.56 0.02

10 The Vanguard Group, Inc. 31-May-17 0.90 2.47 0.08

(in %) Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Promoter 62.27 62.26 62.26 62.16 62.14

FII 19.64 20.61 20.83 21.87 21.89

DII 6.80 6.06 6.27 5.51 5.53

Others 11.29 11.07 10.64 10.36 10.44

Source: Reuters, ICICIdirect.com Research

Recent Activity

Investor Name Value Shares Investor Name Value Shares

Capital World Investors 204.29 3.32 Lyxor Asset Management -20.22 -0.31

Capital Research Global Investors 185.31 3.02 RBC Investment Management (Asia) Ltd. -8.33 -0.17

Trapti Trading & Investments Pvt. Ltd. 43.41 0.67 FIL Investment Management (Hong Kong) Limited -10.07 -0.15

OppenheimerFunds, Inc. 6.85 0.11 FIL Investment Management (Singapore) Ltd. -7.70 -0.14

The Vanguard Group, Inc. 5.20 0.08 China International Fund Management Co., Ltd. -6.34 -0.13

Buys Sells

Source: Reuters, ICICIdirect.com Research


Financial summary

Profit and loss statement | Crore

(Year-end March) FY16 FY17 FY18E FY19E

Total operating Income 23,708.8 23,891.4 29,081.0 35,166.9

Growth (%) 4.7 0.8 21.7 20.9

Raw material cost 3972.8 4024.5 4246.3 5140.3

Power & Fuel cost 4240.8 3926.6 5414.8 6168.4

Freight cost 5934.9 5845.2 7063.3 8224.5

Employees cost 1343.0 1413.4 1691.4 1974.4

Others 3590.7 3712.8 4753.1 5551.5

Total Operating Exp. 19,082.2 18,922.5 23,168.9 27,059.1

EBITDA 4,626.6 4,969.0 5,912.1 8,107.7

Growth (%) 18.2 7.4 19.0 37.1

Depreciation 1,297.0 1,267.9 1,647.6 2,052.9

Interest 511.7 571.4 1,435.5 1,691.4

Other Income 480.7 660.0 769.5 806.6

PBT 3,298.6 3,789.6 3,598.5 5,170.0

Total Tax 928.4 1148.2 1108.2 1602.7

PAT 2,370.2 2,641.4 2,490.3 3,567.3

Growth (%) 17.6 11.4 -5.7 43.2

Adjusted EPS (|) 86.4 96.3 90.8 130.0


Cash flow statement | Crore


Profit after Tax 2,370.2 2,627.7 2,490.3 3,567.3

Add: Depreciation 1,297.0 1,267.9 1,647.6 2,052.9

(Inc)/dec in Current Assets 224.0 1,016.0 -2,212.5 -149.1

Inc/(dec) in CL and Provisions 70.6 -490.8 2,814.1 1,799.5

CF from operating activities 3,961.8 4,420.7 4,739.5 7,270.7

(Inc)/dec in Investments 495.4 -3,378.3 0.0 0.0

(Inc)/dec in Fixed Assets -2,224.1 -1,429.8 -19,663.0 -3,499.4

Others 435.4 111.2 0.0 0.0

CF from investing activities -1,293.4 -4,696.9 -19,663.0 -3,499.4

Issue/(Buy back) of Equity 0.0 0.1 0.0 0.0

Inc/(dec) in loan funds 252.7 -1,396.3 14,230.0 0.0

Dividend paid & dividend tax -313.8 0.0 -802.6 -866.8

Inc/(dec) in Sec. premium 0.0 0.0 0.0 0.0

Others 17.5 702.7 0.0 0.0

CF from financing activities -43.5 -693.5 13,427.4 -866.8

Net Cash flow 2,230.1 108.1 -1,496.1 2,904.4

Opening Cash 200.5 2,430.6 2,538.8 1,042.6

Closing Cash 2,430.6 2,538.8 1,042.6 3,947.0


Balance sheet | Crore


Liabilities

Equity Capital 274.4 274.5 274.5 274.5

Reserve and Surplus 20,657.1 23,987.6 25,675.3 28,375.8

Total Shareholders funds 20,931.5 24,262.1 25,949.8 28,650.3

Total Debt 7,667.9 6,271.6 20,501.6 20,501.6

Deferred Tax Liability 3,227.4 3,338.6 3,338.6 3,338.6

Minority Interest / Others 0.0 0.0 0.0 0.0

Total Liabilities 31,826.8 33,872.3 49,790.0 52,490.5

Assets

Gross Block 35,812.1 37,241.9 56,904.9 60,404.9

Less: Acc Depreciation 11,864.4 13,132.3 14,779.9 16,832.8

Net Block 23,947.7 24,109.6 42,125.0 43,572.1

Capital WIP 0.6 0.6 0.6 0.0

Total Fixed Assets 23,948.3 24,110.2 42,125.6 43,572.1

Investments 5,108.1 7,408.7 7,408.7 7,408.7

Inventory 2,426.1 2,225.0 3,431.9 3,408.8

Debtors 1,414.9 1,276.2 2,006.4 1,963.1

Loans and Advances 2,676.0 643.9 810.2 877.9

Other Current Assets 43.5 1,399.5 1,508.6 1,656.4

Cash 2,430.6 2,538.8 1,042.6 3,947.0

Total Current Assets 8,991.1 8,083.3 8,799.7 11,853.2

Creditors 5,094.1 1,713.8 6,572.3 3,447.8

Provisions 1,126.7 4,016.1 1,971.7 6,895.7

Total Current Liabilities 6,220.7 5,729.9 8,544.0 10,343.5

Net Current Assets 2,770.4 2,353.4 255.7 1,509.7

Others Assets 0.0 0.0 0.0 0.0

Application of Funds 31,826.8 33,872.3 49,790.0 52,490.4


Key ratios


Per share data (|)

EPS 86.4 96.3 90.8 130.0

Cash EPS 133.6 142.0 150.8 204.8

BV 762.8 884.2 945.7 1,044.1

DPS 9.5 0.0 25.0 27.0

Cash Per Share 88.6 92.5 38.0 143.8

Operating Ratios (%)

EBITDA Margin 19.5 20.8 20.3 23.1

PBT / Total Operating income 13.9 15.8 12.4 14.7

PAT Margin 10.0 11.0 8.6 10.1

Inventory days 39.9 35.5 35.5 35.5

Debtor days 20.2 20.6 20.6 20.6

Creditor days 76.5 52.0 52.0 52.0

Return Ratios (%)

RoE 11.3 10.8 9.6 12.5

RoCE 11.6 12.1 9.2 12.3

RoIC 12.2 14.3 9.8 14.0

Valuation Ratios (x)

P/E 48.7 43.9 46.4 32.4

EV / EBITDA 25.6 22.9 21.9 15.6

EV / Net Sales 5.0 4.8 4.5 3.6

Market Cap / Sales 4.9 4.8 4.0 3.3

Price to Book Value 5.5 4.8 4.4 4.0

Solvency Ratios

Debt/EBITDA 1.7 1.3 3.5 2.5

Debt / Equity 0.4 0.3 0.8 0.7

Current Ratio 1.4 1.4 1.0 1.1

Quick Ratio 1.1 1.0 0.9 0.8



ICICIdirect.com coverage universe (Cement)

CMP M Cap

(|) TP(|) Rating (| Cr) FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E FY17 FY18E FY19E

ACC* 1750 2050 Buy 32,890 39.0 60.3 68.1 24.1 17.6 15.0 169 147 147 11.1 16.4 16.7 8.5 12.1 12.6

Ambuja Cement* 268 280 Buy 53,215 4.9 7.4 7.1 32.2 23.2 22.0 190 184 185 3.8 8.1 8.1 5.1 7.4 6.9

UltraTech Cem 4,212 4750 Buy 115,440 96.3 90.8 130.0 22.9 21.9 15.6 264 232 220 12.1 9.2 12.3 10.8 9.6 12.5

Shree Cement 18,193 17800 Hold 63,312 385 550 717 27.1 18.6 14.5 389 372 355 12.3 19.1 20.4 17.4 20.2 21.2

Heidelberg Cem 139 145 Buy 3,150 3.4 7.3 8.7 16.1 9.7 8.9 123 118 115 8.2 16.3 16.9 7.9 15.3 16.8

India Cement 209 245 Buy 6,420 5.4 8.5 11.1 10.8 9.8 8.7 101 99 95 7.5 8.3 9.2 3.3 4.9 6.0

JK Cement 977 1265 Buy 6,853 37.1 50.9 59.2 14.1 11.2 9.8 131 126 115 12.6 15.1 16.6 14.5 16.1 16.2

JK Lakshmi Cem 472 525 Hold 5,520 7.0 10.8 19.8 19.5 13.6 10.8 102 92 84 7.5 10.8 13.7 5.9 8.5 13.5

Mangalam Cem 402 425 Buy 1,073 12.9 31.1 37.7 12.1 7.2 6.3 58 53 52 10.9 18.4 19.7 6.8 14.2 14.9

Star Cement 126 115 Hold 5,198 4.1 6.5 6.9 14.3 9.9 9.5 250 244 241 13.8 19.8 19.0 14.0 18.7 17.2

Company

EV/Tonne ($)EV/EBITDA (x)EPS (|) RoCE (%) RoE (%)

*CY15E, CY16E CY17E



RATING RATIONALE

ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns

ratings to its stocks according to their notional target price vs. current market price and then categorises them

as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional

target price is defined as the analysts' valuation for a stock.

Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction;

Buy: >10%/15% for large caps/midcaps, respectively;

Hold: Up to +/-10%;

Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk,

ICICI Securities Limited,

1st Floor, Akruti Trade Centre,

Road No 7, MIDC,

Andheri (East)

Mumbai – 400 093

[email protected]


ANALYST CERTIFICATION

We /I, Rashesh Shah, CA, and Devang Bhatt, PGDBM Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately

reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this

report.

Terms & conditions and other disclosures:

ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities

Limited is a Sebi registered Research Analyst with Sebi Registration Number – INH000000990. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is India’s largest private sector bank and has

its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (“associates”), the details in respect of which

are available on www.icicibank.com.

ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking

and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts

and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and

meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without

prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current.

Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended

temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this

company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This

report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial

instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their

receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific

circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment

objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate

the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any

loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the

risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to

change without notice.

ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment

in the past twelve months.

ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in

respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction.

ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned

in the report in the past twelve months.

ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its associates or its analysts did not receive any

compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts

and their relatives have any material conflict of interest at the time of publication of this report.

It is confirmed that Rashesh Shah, CA, and Devang Bhatt, PGDBM Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding

twelve months.

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

ICICI Securities or its subsidiaries collectively or Research Analysts or their relatives do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month

preceding the publication of the research report.

Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject

company/companies mentioned in this report.

It is confirmed that Rashesh Shah, CA, and Devang Bhatt, PGDBM Research Analysts do not serve as an officer, director or employee of the companies mentioned in the report.

ICICI Securities may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

Neither the Research Analysts nor ICICI Securities have been engaged in market making activity for the companies mentioned in the report.

We submit that no material disciplinary action has been taken on ICICI Securities by any Regulatory Authority impacting Equity Research Analysis activities.

This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution,

publication, availability or use would be contrary to law, regulation or which would subject ICICI Securities and affiliates to any registration or licensing requirement within such jurisdiction. The securities

described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and

to observe such restriction.

ultratech cement (ultcem) | 4,212

Documents